The Chicago Mercantile Exchange (CME) has recently decided to raise maintenance margins for silver. Is this a standard procedure? Should I be prepared for further raises?
Raising the maintenance margins is something that we should get used to, as there will be more of them as the bull market continues. This is the regulators' natural reaction toward rising values of metals, as they need to make sure the amount being held on margin represents more or less the same value percentage-wise. Theoretically, with silver at $10, a 10% margin is $1, whereas at $100 it would amount to $10.
At some point margins could become excessive, meaning that they could become bigger than the value of the contract on the metal itself. For instance to hold $10,000 of silver in a futures contract, you would need to deposit more than $10,000. That's right - and something like that happened just several years ago on the palladium market. You can read about it in this essay. If you are wondering if it is really worth the trouble to keep some metals in the physical form, then this essay will most likely provide sufficient incentive.
A word of caution here - while such a scenario could play out in the future, it is not likely to happen soon, so keeping only a part of your holdings in physical metal and using rest for short- and long-term trades still appears to be a good idea for most Investors.
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